Saturday, April 27, 2013

Friedman: Tax Cut Fever is "Bipartisan" Disease

By Shaw Friedman in the Fort Wayne Journal-Gazette:

Those Democrats and moderate Republicans who tut-tut about Gov. Mike Pence’s almost religious faith in tax cuts as a means of spurring job creation ought to remember that it was the Democratic nominee for governor, John Gregg, who started this nonsense last summer.

That’s right. Even though most Democrats (and a majority of Hoosiers) agree with the proposition that investments in education and infrastructure are the best way of creating new jobs, it was Gregg who broke with his own party and defied his own pollsters when he proposed cutting the already-anemic amount Indiana collects in corporate income taxes, which would have cost the state $500 million at the time.

Then, while county highway departments and local street departments were already suffering under the weight of tax caps and reduced funding, Gregg went on to propose eliminating the motor fuel tax of 18 cents a gallon that generates $800 million a year for our roads and bridges.

Eric Bradner of the Evansville Courier reminds us that it was Gregg who fired the first shot in the tax cut wars back in the summer of 2012, spurring candidate Pence to counter with his own proposed reduction in the state’s income tax from 3.4 percent to 3.06 percent. That income tax proposal became a central theme of the Pence campaign and the new governor was then wedded to it as gospel in his 2013 legislative program.

Never mind the fact that most Hoosiers know better. Even Gregg’s own pollster – Benenson Strategy Group – told him in a March 2012 poll that Indiana voters by a margin of 57 percent to 37 percent favor investments in education as a job-creation strategy over more corporate tax cuts.

Both Gregg and Pence continue laboring under discredited trickle-down theory that says that corporate or personal income tax cuts will magically lift our sputtering economy.

Our governor even went so far as to declare last week that Indiana risks losing the “jobs war” if lawmakers failed to enact his half billion dollar personal income tax cut. The white paper pointing to states without an income tax as booming conveniently neglects to mention that states such as South Dakota, Alaska and Wyoming are doing well because of a growing energy sector that is heavily taxed.

Take a look at the data; they don’t support the notion that massive tax cuts will help spur our state’s economy. The Center on Budget and Policy Priorities, a Washington, D.C., think tank, issued a study in late March reviewing the experience of six states that enacted large individual income tax cuts between 2007 and concludes those states failed to earn any particular economic advantage.

Indeed, Arizona, Ohio and Rhode Island, states that cut their taxes since 2000, all subsequently trailed national job and income growth. Yes, Louisiana, New Mexico and Oklahoma did exceed the averages, but what the Center found was that oil and gas industry growth was responsible for nearly all those states’ gains.

Simply put – the study showed that tax cuts “as a prescription for economic growth” is an approach “not supported by the preponderance of the relevant academic literature.”

See the full editorial here: